CHANGE OF SENTIMENTS

Over the last fortnight, equity markets across the globe and India seem to be disappointed and therefore showed some correction. On the domestic front, market participants are seen to be harbouring bearish sentiments despite the fact that the present corporate earnings’ season is panning out well for the economy. However, foreign institutional investors (FIIs) were disappointed over the Special Investigation Team’s (SIT) recommendations on investments in Indian markets through Mauritius and participatory notes (P-notes).

In order to curtail black money, the SIT recommended that the regulator SEBI should have information of the final beneficial owners of P-notes and other offshore derivative instruments. The disappointment of FIIs was clearly seen over the last 15 days with them being the net sellers of Rs 333 crore worth of Indian equities.

However, the government soon adapted a damage control mode after anticipating bearish sentiments across the domestic markets in the wake of the SIT’s recommendations. Finance Minister Arun Jaitley said the government will take into account the impact on the investment climate while considering the SIT report on black money. Though this announcement has given a respirator to the Indian markets, the markets actually recovered on the news of the Union Cabinet’s approval for amendment to the Goods and Service Tax (GST) Bill.

Pushing GST Bill Ahead

The cabinet approved compensation for states for revenue loss for five years once the new nationwide uniform tax regime is implemented. The amendments made by the select committee of the Rajya Sabha and the Union Cabinet are a move to win over the support of parties like Trinamool Congress and Biju Janata Dal in getting constitutional amendment approved by the upper house where the government is in a minority.

However, the road for GST does not seem to be easy this time too as the recent suspension of 25 MPs for five days created a logjam during the present monsoon season and put a spanner in the working of the house. The present parliament session will be till August 13. Hence, if the parliamentary shutdown continues any further, it will be difficult to get the Bill passed in the current session. It is imperative for the government to get the Bill passed this session to stay on track of implementing the GST by April 1, 2016.

An Oily Issue

During the last fortnight, oil extended its losses to multi-month lows on worries of oversupply as OPEC pumped at record levels in July and weak China data indicated slower growth by the world’s second-largest oil consumer. The lower oil prices are definitely expected to benefit Indian corporate earnings’ in the coming quarters. In the RBI’s bi-monthly review meeting, the governor took a cautious step over the uncertainty of this year’s rainfall despite lower oil prices. The RBI kept both the repo rate (7.25 per cent) and the cash reserve ratio (4 per cent) unchanged.

Keeping the Faith

Meanwhile, the Federal Reserve too kept its status quo during the two-day US’ central bank’s Open Market Committee’s meeting. Overall, the sentiments across the Indian market seem to be recovering after the disappointment from SIT’s recommendation on foreign investment routes. We expect the domestic markets to remain biased towards the positive.